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Success != Being Rich

Posted on 23/04/2009 at 08:15 PM in

I don't usually write anything on here that may be related to politics (that's usually left to my twitter account) but there is something I heard today that irked me enough to write a blog post on it. It relates a lot to running a business but also to life in general so hopefully it will be of interest to those who are reading it.

For those who don't know, I'm based in the UK. Yesterday the UK government announced the budget for the next year. As well as hearing about how we're all basically doomed the government announced that there will be a new 50% tax band for those earning over £150,000 a year. This means for every pound you earn over £150,000 a year, half of it will go to the government to pay for various public services.

Of course there has been outrage from many of the 1.5% of the population who earn over £150,000 a year and this is partially understandable. Nobody likes paying taxes, but they're a necessary evil and help to pay for things such as health care, roads, schools, parks, refuse collection, police, fire services, defence and many other crucial services. Unfortunately some of the rich feel they're being punished for being successful.

Perceptions of Success

The BBC News had a businessman on their channel to talk about the implications of the tax rise. He felt it was unfair that the successful were being punished for their success. Of course what he really meant was "rich". There is a common perception that in order to be successful you have to be rich. To me this is incredibly flawed. A CEO of a failing company can be incredibly rich but the owner of a small, but successful business may not be rich (thought they probably aren't poor). Yet for some reason the CEO is seen as more successful in life.

Its this perception that leads to many people's desire to be rich. They want to be seen as a success. The problem is it is wrong. Taxing people 50% on their earnings over £150,000 isn't taxing the successful. It isn't really taxing the rich either. It is taxing the greedy.

Massive wages = greed

OK, so that is a little unfair. Some people need bigger wages. Perhaps they're in a career where they can't work until they're 65. No-one would have any qualms with police officers, fire officers, sports stars, soldiers, physical labourers etc earning higher than average per year. Their wages may go down after they are required to change career or forced to retire because they are too old, or have picked up an injury caused by their work, so earning more while they're in their prime makes sense.

I'm also not advocating everyone should be paid the same wage. Those who are highly skilled should be paid more then average. Those who put themselves in danger and/or save lives should be paid a hell of a lot more then average (and also a lot of respect). A varying pay scale is perfectly fine. It is also a case where you may need to earn more depending on the number of people dependant on you (eg children) or where you live (eg London is a much more expensive place to live than Blackburn).

The problem is with those who earn a lot of money each year, more than £150,000, and then spend it on themselves. These are often the people complaining the most about higher taxes for the rich. Of course not everyone who earns that much money is greedy. Some people earn a lot of money but give a huge amount of it away to charity. Nobody could call those people greedy (indeed I believe all money given to charity should be fully tax deductible to encourage more to give to charity).

But those who have a lot of money left over after they have given to charity and paid for the essentials that everyone needs are just being greedy. They'll likely buy themselves a much bigger house they need, or an extremely pricey sports car etc. Things they don't need with a huge amount of disposable income. Things to signify "success".

The Right Thing To Do

So if you are earning that much money, you really have no right to complain. If you are running a successful business and taking £150,000 a year in wages or more then you're being greedy. You could give yourself £50,000 a year and still be incredibly well off. You could have a large house, 2 very nice cars, go on holiday abroad once a year etc.

But what about the other £100,000? Well that could be given to charity. Think about how much good you could do with £100,000. Or how about hiring some more staff. You could hire three people for £33,000 a year. That's a pretty decent wage and you've just helped lower the unemployment figures by 3 people.

The reason that those who earn a lot of money are taxed at a higher rate is that the money they have being taxed at that rate is disposable income. They don't need it, they simply want it. That money can be used for a lot of good and improve the lives of a lot of other people.

Success really needs to be redefined, or rather it's actual definition needs to be reclaimed. Success should be based on how well you perform, not on how much you earn.

Businesses vs Individuals

Businesses are slightly different to individuals. If a business earns a large profit then it's not necessarily a bad thing. In fact that is success. Of course how they use that profit is key. They may give all their employees a share of it, or invest it in research and development. They may save it in order to protect themselves against times when they make a loss or for future plans such as expansion which will create jobs.

Of course, that doesn't mean businesses should be entirely immune to criticism either. If they do make a huge profit they should also not complain about it being taxed. The money that gets taken away as tax goes towards many things that help them as a business prosper, and also in improving the lives of their individuals.

Tax money that goes into improving schools helps provide more skilled workers for the business. Tax money that goes into transport helps the business move their goods and workers around. Tax money that goes into communications infrastructure helps the business expand while being able to keep track of everything. The taxes being taken from a business's profits aren't really a loss of money, but an investment in the business.

Success = Doing Well

As I said earlier, taxes are a necessary evil. But higher tax rates on higher earners is not taxing the successful. There are plenty of people earning under £150,000 who are successful, to say otherwise would be saying 98.5% of the population are failures.

Success as a word needs to be reclaimed to mean doing well, setting out goals and meeting or surpassing them. If we can do that then maybe we can see society becoming more equal and those who do earn a lot of money choosing to help others with it, rather than themselves.

(16) Comments

Comments

Hey Pilky,

I agree with a lot of what you say, but £50,000 is nowhere *near* enough money to own a house - any kind of house - in London, never mind own (and park) two cars, an Oyster card and have a holiday.

But you’re absolutely right that high salaries are basically immoral. Especially when they are paid at the expense of people lower down the corporate food-chain who are being made redundant.

I admire your willingness to make sacrifices in the name of the common good.

Posted by James Higgs on 23/04/2009 at 09:30 PM

I really, really, don’t agree, but I’m not interested in ranting, so I’ll try not to, I’m genuinely interested in why our opinions differ so wildly.

I’m of the opinion that, if someone is paid £150,000 a year, then someone, somewhere thinks their time/effort/leadership/whatever is worth that much.

What they spend it on is their business, they earned it, however, that came about, either by building up experience, knowing their job and market well, or some other kind of personal value-adding exercise, they are worth that amount of money, and it’s up to them what they do with it.

If I gave £5 to a tramp for a copy of the Big Issue, would I follow said tramp around and make sure he didn’t spend the money on something I objected to? No, it’s his money the moment I gave it to him.

I don’t disagree that charity is an innoble endeavour, nor that the highly paid can do good with their salaries, simply that the government is not the be-all arbiter of what is great and good in this country.

There are a great number of charities I support personally, and could support more fervently if the government’s tax take was lower. There are charities supported by the government whose aims I find wholly objectionable, but I don’t get the ability to decide whether they get my money or not, that decision is taken out of my hands, on pain of prosecution should I not pay tax.

Put simply, I think that leaving people, and, yes, that includes the rich, with as much of their earned income as possible, is the best way of letting them choose what is important for them, and apply those decisions as they see fit, rather than a huge, monolithic government.

Posted by Martin on 23/04/2009 at 09:30 PM

Well said that man.

I actually think that one group that should be paid better than average, who you didn’t mention, is the group who do all the shitty jobs that the rest of us don’t want to do!

It’s always seemed a bit unfair to me that I get paid pretty well for a job that I basically love (well, used to love, but that’s another story) and would probably do for free if someone gave me a roof and food. Whereas the folks who clean the office in which I do that job probably get paid really badly for something that they’d quite possibly rather not be doing (and I’d definitely rather not be doing).

When it comes down to it, the only reason I care about how much I earn is because I want to buy a house; and the only reason I want to buy a house is to stop landlords from selling the bloody things from under me - not because I particularly have the need or desire to own one.

Posted by Sam Deane on 23/04/2009 at 09:30 PM

@James: I agree that your wage should probably be higher if you’re living in London so you can afford those sorts of things. I’m not really going to set a single figure for everywhere as that would be foolish as a person’s circumstances play a huge role in what they need.

@Martin: As I say in the post, I believe payments to charities should be fully tax deductible to encourage a person to pay more to charity.

As for lowering taxes, the problem is that a large amount of tax revenue goes on stuff that an individual can’t do themselves, and especially on some services that are too sensitive on income to truly trust in the hands of business. These include education and health care, where those who are the poorest often need the biggest investment.

Obviously not everything should be done by governments and there’s a lot that businesses could handle. Governments can get very over reaching and I’m not advocating the government do everything.

All I’m really saying is that those who earn over £150,000 will not really miss the extra money going in taxes. It is disposable income and that will end up going to things that will benefit them, but also those who need the money more than them.

Posted by Martin Pilkington on 23/04/2009 at 09:38 PM

@Martin

The point is that rich people don’t actually end up paying those taxes anyway because they can afford to hire lawyers, accountants and lobbyists to help them get out of it.

The gap between people on over £100k and those at the minimum wage is utterly obscene. And any attempt to try to paint it as a meritocracy is surely doomed to failure in this post-RBS, Lehman, et. al. age.

In fact, it’s an old boy’s club that, once you’re in, you can use to ride the money train for life. You don’t have to face the consequences of failure, and you don’t have to chip in to help anyone else out (thanks to those lawyers).

But, you’ll get your wish with the next government. We’ll see how equitable *that* turns out to be.

Posted by James Higgs on 23/04/2009 at 09:39 PM

You’re half-right, but I would argue also half-wrong. Success is definitely not the same as being rich, and that’s where you’re dead on the money (no pun intended…), but that’s not what the real problem with a 50% tax rate is.

The problem is threefold - first of all, the 1% of people who earn £150,000 or more already account for nearly a quarter of all the tax revenue raised in the UK. They already pay so much more in taxes than we do that it’s not unreasonable for them to be unhappy when we turn round and say they need to pay even more. The 50% figure is also misleading - people in that tax band also pay far more in National Insurance, in Capital Gains Tax and in other taxes - plus they pay more VAT because they buy more expensive things, they pay more stamp duty and council tax thanks to owning a larger house. They already pay an enormous amount in tax, and even though some definitely are, they’re not all bastards.

Secondly, increasing tax on the people who earn a lot reduces the incentive to earn more money, which is bad for the economy. If I told you that you’ll only earn money selling software as long as you don’t sell too much of it, you wouldn’t necessarily want to invest the time and effort required to grow your business - which means your business wouldn’t grow as large. If, to keep your company from earning too much you decided not to hire somebody else, for instance, that potential job has been lost from the economy.

Lastly, the people who earn a lot are the people most able to simply move their money/earnings/business elsewhere. It’s not much good raising tax rates on rich people if all it does is cause the rich people to leave the country entirely and stop paying any tax in the UK. They can also afford better tax lawyers and such, but even leaving tricks loopholes out of the equation, a higher rate of tax means high earners leave.

As for why 40% instead of 50%, it’s just that it’s a number that works - historically, and in other countries, Governments have been able to raise more tax revenue with a top rate of 40% than with 50%. It seems counter-intuitive, but the way it balances out means that charging less actually earns more money. From a pragmatists perspective, this makes the lower rate a better alternative.

Posted by Stu on 23/04/2009 at 10:03 PM

@Martin (Pilkington)
Ideologically, I don’t think the government should supply healthcare, but realistically, I have no massive objection to the system we have, it simply needs to be managed better.

That’s really to say that I have no real problem with paying for the NHS, nor education, value for money arguments aside, I think they’re worthwhile.

What I object to is the vast amount of waste that government engages in, the sheer volume of money that washes through it and is spent on anything from expenses to quangos. When someone earning less than £7k/year is taxed, that boggles my mind. The tax allowance should be closer to £20k, in my opinion, to actually incentivise people to work, and let them reap the rewards of that as soon as possible.

The only way I’m arguing that those who’ve earned it can keep it is simply because I don’t believe the government should get its grubby little hands on it, and this isn’t a partisan issue, I abhor the Conservatives’ prospective public spending plans as much as I do Labour’s. Frankly, I’d be elated to see anyone other than the government get it.

But where we differ is that I don’t think people should be financially penalised for what decision they make from the menu of divestment options.

@James
I take your point about meritocracy, but the point of a meritocracy is that it’s self-regulating, and the examples you quote are falling foul of that because the government bailed out the failing banks. This means, in the context of “good at work”, that, because of the risk profiles the banks operated, those who got short-term gains for their employers, were deemed “good”. That they were bailed out and not had their heads put atop a spike pulls the rug out from under a meritocracy.

The idea that money should go to those who’ve earned it is one I faithfully ascribe to, which is why I vehemently object to the government getting more than is absolutely necessary, as they’ve proved themselves manifestly unable to handle anything financial, if not simply due to that fact both cabinets are full of career politicians so the closest they’ve come to financial planning is collating their Sky reciepts, but their attitude to business, spending, both public and private and the attitude they have towards the Bank of England just shows they’ll put politics above almost everything else, and hang the grandkids who’ll have to pay for their face-saving.

Posted by Martin on 23/04/2009 at 10:08 PM

@Martin (not Pilky)

Unfortunately I don’t think there’s any way we can have a reasonable discussion if you’re seriously telling me that there’s a valid ideological objection to state provided healthcare. What you’re saying amounts to “ideologically, I don’t think poor people should be able to get access to healthcare”. It really is *that* simple. And when I say “poor” I include people who earn substantially more than the minimum wage (the one that would cost millions of jobs and make businesses less competitive, remember?).

Rewards for failure are nothing recent. They’ve been happening since - at least - Nigel Lawson’s ‘Big Bang’. It’s just that now that people are really starting to object since they’re paying for them directly.

There has never been a meritocracy in the UK and I can’t ever see it happening.

Posted by James Higgs on 23/04/2009 at 11:56 PM

@James
That’s not what I’m saying at all, and this whole “rich people vs poor people” is marginalising what is a far more nuanced discussion.

Do I think the NHS could be provided privately, at a lower cost to the exchequer? Undoubtedly, but, again, that’s really not what we’re discussing here.

I don’t understand this attitude that by taking a chunk of the income of poor people when they’re earning less than 7K you’re somehow helping them. Or that decisions taken at a high, universal level have any relevance at all to the majority of a populace.

Reducing an argument about tax to “you hate poor people and love rich people” is incredibly churlish.

There are thousands of meritocracies in the UK, just because the banking industry has a ridiculous sense of value, and that MPs are a bunch of trough-snuffling pigs doesn’t mean that your average person isn’t a rational human being who knows when they’re being screwed over, or whether the person they’re listening to knows what they’re talking about.

There seems to be an undercurrent of policy at the moment that refuses to acknowledge that human beings are rational agents, that, if they have more take-home pay, they will spend it according to what *they* value, and not what the government do, and that’s bad, because alchohol/drugs/cigarettes/driving/eating are bad for you, and we say so, and are going to force you to stop, never mind the notion that it’s your body or your money.

The nub of this discussion, for me, is a sentiment that rich people don’t deserve to be rich. Some say yes, others say no, the difference is, those are just opinions. The problem comes when the government gets to force its opinion on its citizenry, then it ceases to be a simple opinion and becomes a (rather sizeable) legal force.

More than that, when people’s livelihoods become a political plaything, and I’m talking as much about the lower end of the income scale as I am about the upper here, where electoral mathematics take over from civic duty, and jealousy, envy and outright vindictiveness come into play.

Laws emanate from society. If someone, or a group of people, are doing something society as a whole finds abhorrent, then outlaw it, c.f. hate crime legislation. Penalising aspiration through such obviously skewed taxation legislation is petty, rude and, in this instance at least, being used to cover the mistakes of a government drunk on spending and loading up consequence for the next administration.

Success is subjective, when subjectivity becomes lawfully enforced objectivity, that’s just plain dangerous.

Posted by Martin on 24/04/2009 at 12:28 AM

@ Martin (not Pilky)

I disagree with virtually everything you say. You’re a Tory and I’m a Socialist, but please don’t ascribe the view or policies of this government to me. They appal me in so many ways, but they have finally found the nuts to implement some policies that really do have redistributive benefits. “Drunk on spending” you say. It think that’s bollocks. They’ve improved Britain in nearly every conceivable way (except for their dreadful civil liberties record) and done it despite also favouring business to an extent that makes me want to puke. Debt was manageable until the crisis hit. And please don’t try to blame the govenment for it: it genuinely *is* a worldwide problem that could not have been avoided. Despite this, the Tories are running around with their quiffs in disarray pretending that if they’d been in power this recession and crisis *could* have been avoided. Of course that’s nonsense: it would have been *far* worse. And we’d have more runs on banks since they would have been unprepared to bail them out.

I’m sure you’re right that the majority of the population don’t want the current government to continue in power, but that’s the the case for every single government since the war anyway.

I believe that social engineering is a moral requirement of governments. It is their *duty* to help people to live better lives, whether by making drink-driving socially unacceptable, or by disincentivising smoking. They *do* know better than individuals who smoke (and I used to be one).

I do hate rich people. Because they’re people who don’t care that, side by side with their luxury, there are people struggling to deal with the lot they’ve been given, and against a whole truckload of prejudices. Meanwhile people all sectors of business - not just the banks - get jobs via the old boy’s network, the right school, university or last name. And then they get a massive payout when it all goes wrong, followed by a nice comfy place on a commission of enquiry to figure out who’s fault it was.

You say that health care could “undoubtedly” be provided at a lower cost than through the exchequer. I thin there’s a *massive* doubt about that. Just as there was over the privatisation of the railways. We will, of course, end up with a Tory government in a year, that’s inevitable, and back will come the social repression (Clause 28, etc) and the old hatreds and divisions. They are, basically, a bunch of racists. The country is sleepwalking into it. I’d rather have this discredited and tired government for the rest of eternity than one day of David Cameron.

Posted by James Higgs on 24/04/2009 at 12:53 AM

@James

My sincere apologies, I did not intend to ascribe any of this government’s policies to you, and I regret it came across that way. I did not intend this to become even remotely personal, as I think the current climate of tackling the man rather than the ball, so to speak, is utterly abhorrent.

You’re entirely correct that it’s unlikely we’ll find any middle ground at all in this discussion, even if I consider myself far more libertarian than the current Tory high command, both on social and economic issues.

At least we can (perhaps) agree that civil liberties have been rather decimated, although I find it highly unlikely that the Tories will do much to rectify that particular balance!

Posted by Martin on 24/04/2009 at 04:36 AM

I cannot believe this post. If i’m running a business or in a profession that pays me a great deal of money why is that greed? Who is the government (or other people) to say how much I SHOULD be making?

Maybe they should also say, how much food you should keep in your fridge, because there are hungry people out there who need it, or maybe you should only have three shirts in your closet because someone out there only has 2.

I agree with giving to charity, but if you strive to earn more or make smarter moves then you deserve what you earn. Survival of the fittest.

Posted by PatrickC on 26/04/2009 at 02:25 AM

Where do you live - I think nowhere in England - where you can “have a large house, 2 very nice cars, go on holiday abroad once a year” on £50k?

Posted by Andrew Cook on 29/04/2009 at 09:27 PM

@PatrickC: Because that is generally money you don’t need

@Andrew Cook: I live in Lancashire. My parents earn just under £40k between them, we have 2 decent cars (I’m not talking like sports cards when I say very nice) and a decent sized house. We don’t have the go on holiday abroad once a year part but they have been supporting 3 children most of their life.

As I pointed out though, the amount of money you need will vary depending on region and how many dependants you have. £50k a year won’t get you much down in London with 3 kids, but it can get you quite a lot up north.

Posted by Martin Pilkington on 30/04/2009 at 04:11 PM

To the person who started this thread, you can’t really be surprised that things get taken personally when posting a piece on politics or religion, can you? I mean, really!

My personal opinion is that if a person makes tons of money, more power to ‘em. As long as they came by it legally, blame those that bought their products or services. Money isn’t made out of thin air. To cast a broad net saying “all those who have > X pounds after paying for life’s necessities is greedy” just sounds like jealousy.

Posted by Andy Staab on 08/05/2009 at 09:59 PM

Bravo man.

Success for me means a nice girl, a few beers with the lads and sense of well being.

I’d like to be rich , but if I was, I’d know it’d be the community that ultimately helped me get there, so a couple percent extra tax is the least I can do to give back.